Many people who were home during 2020 due to COVID occupied their time doing home repairs and upgrades. Did you do anything that would qualify you to take one of Residential Energy Credits? There are two credits, Residential Energy Efficient Property Credit or Nonbusiness Energy Property Credit.
The Residential Energy Efficient Property Credit allows you to take a credit of 30% of your:
- qualified solar electric
- solar water heating
- small wind energy
- geothermal heating pump
- fuel cells costs
The cost can include any labor costs applicable to the onsite preparation, assembly, and the original installation of the residential energy efficient property installed. This would include any costs for piping or wiring to connect the energy efficient property to the home.
Qualified solar electric property costs are costs for property that uses solar energy to generate electricity for use in your home. Costs relating to a solar panel or other solar property installed as a roof are not allowable costs. These are considered a structural component of the roof on which they are installed. Some solar roofing tiles and shingles serve the function of both traditional roofing and solar electric collectors; the function is both structural support and solar electric generation. These solar roofing tiles and shingles can qualify for the credit. A roof’s decking or rafters would not qualify for the credit. Qualified solar electric property installation costs do not have to be on your main home.
Solar water heating costs to heat water for the use in your home qualifies if at least half of the energy used by the solar water heating property is derived from the sun.
To qualify for the credit, the property must be certified for performance by the nonprofit Solar Rating Certification Corporation or a comparable entity endorsed by the government of the state in which the property is installed. These installation costs can be on a rental or vacation home in addition to your primary residence.
Qualified small wind energy property costs are costs for property that used a wind turbine to generate electricity for use in connection with your home. This home can be a rental, vacation, primary residence or other home.
Qualified geothermal heat pump property costs are costs for property installed on or in connection with your home. This equipment uses the ground or ground water as a thermal energy source to heat your home or as thermal energy sink to cool your home. To qualify for the credit, the geothermal heat pump property must meet the requirements of the Energy Star program that is in effect at the time of purchase. This includes homes other than your primary residence.
Qualified fuel cell property costs are costs for qualified fuel cell property installed on or in connection with your main home. Qualified fuel cell property is an integrated system comprised of a fuel cell stack assembly and associated balance of plan components that converts a fuel into electricity using electrochemical means. To qualify for the credit, the fuel cell property must have nameplate capacity of at least one-half kilowatt of electricity using an electrochemical process and electricity-only generation efficiency greater than 30%. Costs allocable to a swimming pool, hot tub, or any other energy storage medium which has a function other than the function of such storage do not qualify for the credit.
To be able to take the Nonbusiness Energy Property Tax Credit you must have made energy saving improvements to your primary residence located in the United States during 2020. A residence can include a house, houseboat, mobile home, cooperative apartment, condominium, or a manufactured home. A temporary absence due to special circumstances, such as illness, education, business, military service, or vacation will not change your primary residence. You must reduce the basis (what you paid for you home) of your home by the amount of any credit allowed.
The credit can equal the sum of: 10% of the amount paid for qualified energy efficiency improvement installed and any residential energy property cost paid or incurred. Qualified energy efficiency improvements must be installed in your main home, improvements are expected to remain in use for at least 5 years and meets certain energy standards. Qualified energy efficiency improvements are any insulation material or system that is specifically and primarily designed to reduce heat loss or gain or gain of a home when installed. This includes:
- exterior windows and skylights
- exterior doors
- any metal roof with appropriate pigmented coatings or asphalt roof with appropriate cooling granules that are specifically and primarily designed to reduce heat gain of your home
This credit is limited to a total of $500 for all tax years after 2005. If you claimed the credit in a year after 2005 and received credit for $150, you would have a maximum credit available of $350 for 2020, not the full $500. The second limitation to this credit is limited to $200 for windows in all tax years after 2005. If the total of any nonbusiness energy property credit you have taken in previous years (after 2005) is more than $500, you generally cannot take this credit in 2020.
Residential energy property costs are costs of new qualified energy property that is installed on or in connection with your main home. Qualified residential energy property consists of certain:
- electric heat pump and water heaters
- central air conditioners
- natural gas, propane, or oil water heaters and stoves that use biomass fuel
- Qualified natural gas, propane, or oil furnaces and qualified natural gas, propane, or oil hot water boilers
- certain advanced main air circulating fans used in natural gas, propane, or oil furnaces,
Determining if you qualify for Residential Energy Credits is complex. If you are unsure if your improvement qualifies for the credits, keep your paperwork, bills, and energy efficiency numbers or ratings related to your energy improvements with your tax information. If you are unsure if your energy improvements qualify, reach out to your tax preparer, and ask. Do not miss out on a credit you may be entitled to because you do not know or understand if you qualify.
